Tuesday, March 22, 2005

The rigour of science requires that we distinguish well the undraped figure of nature itself from the gay-coloured vesture with which we clothe it at our pleasure.Heinrich Hertz, 1895

Common bloviated pigeon-chesting by those that believe our drive-by fantasyland will continue ad-infinitum include the following claims;

• Ho hum, heard it all in the 70’s• Peak oil = chickenlittlism• The stone age didn’t end because we ran out of stone• OPEC could simply pump more oil if they wished• The world is awash in oil• The market will provide

Obvious logical fallacies aside the final statement has some credibility; we suspect the market will provide with rickshaws and bicycles being high on the demand list.

The point is that the mutterers of such slaver never seem able to offer any coherent argument as to how it is that the price of oil is 400% higher than it was in 1999. Nor can anyone point to the seemingly endless reserves [1] that are said to exist to meet ballooning demand. Certainly in regard to supply and demand within the oil market the empirical facts speak for themselves. None of the hubristic rants inclusive of any of the above bullet points or not, have yet been able to cool the market back to US$11bbl.

Further, all new production due to come online over the next year or two is likely to be offset by existing depletion running close to 2Mbpd per year (ExxonMobil confirm their fields are depleting at 4-6% per year) combined with existing strong demand growth [2].

Although the peak oil model is instrumentally reliable, it has been verified in all oil field production data most visibly in fields that are now in decline since it’s inception in the US in 1971, the actual peak oil date to some extent is largely irrelevant once available supply is surpassed by demand. The debate whether the peak oil model is “true” or “real” or not is orthogonal to the present demand/supply issue. You can happily ignore peak oil at the moment, but you can’t ignore the probability that demand is outstripping supply.

Nevertheless it is a simple observable fact that the peak oil model is descriptively accurate in regard to the oil production cycle. Normative appeals to market principles or human ingenuity do not change geological facts. Furthermore advances in technology serve only to exploit oil reserves at a quicker rate but surely depleting resources at a quicker rate does not solve the depletion problem. The market may well provide, we can be sure it won’t be providing cheap oil, even the flat-earthers are beginning to reluctantly concede this point.

The recent “Hirsh Report”[3] to US Department of Energy describes the economic, social and political costs of peak oil as unprecedented. Hirsh in fact questions the ability of the market to provide adequate solutions. The report looks at the Peak Oil problem from a risk management perspective, Hirsh contending that dealing with Peak Oil will cost trillions of dollars and require years of intense effort. Transitioning to a more fuel-efficient national automobile fleet for example is expected to take more than a decade.

Yet in respect of Peak Oil, from our Government we hear a divine silence. We go about building more roads and infrastructure, we make predictions about how well the economy will do next year, and the year after. The Government has ignored peak oil’s warning signals; many other political parties are equally ignorant.

According to recent analysis on Aljazeera’s web site (Oil Prices Confound Experts, Adam Porter) industry analysts and other “experts” are befuddled by the fact that the price hasn’t fallen. "OPEC isn't running fast enough to meet this train of demand that's growing without any sign of a slowdown," said Gal Luft, executive director of the Institute for the Analysis of Global Security in Washington.

The International Energy Agency (IEA), bastion of positivism, beholder of distended technological hubris are showing signs of worry. This warning was issued by the IEA last Friday, “The reality is that oil consumption has caught up with installed crude and refining capacity," the Paris-based agency said. "If supply continues to struggle to keep up, more policy attention may come to be directed at oil demand intensity in our economies and alternatives”[4]. This revelation comes on the back of upward demand growth and downward discovery adjustments made by the IEA earlier this year.

The typically ultra-optimistic IEA, panderer to neo-classic economic dogma while powerless to do anything about oil price volatility, seem to be suggesting that a crisis is almost upon us. If as Hirsh suggests changeovers will cost (at least in New Zealand terms) many billions of dollars and take a decade or so implement we are likely to see the emergence of serious oil induced problems quite soon. Hirsh cites higher oil prices and oil price volatility as advance signs of peak. The final warning signals are now imminent.

Yet the cavalry is not appearing on the horizon. Evidence is emerging that Saudi Arabia are simply unable to increase production. There have been marked declines in monthly production figures from the peninsula since the end of 2004. If this turns out to be the case and Saudi has peaked then according to Matt Simmons [5] the world has peaked.

A similar scenario faces the FSU. Production figure declines have persisted for several months running. It is progressively evident that production increases both within OPEC and non-OPEC states will prove increasingly difficult to maintain. The limits are being reached.

No, the Stone Age didn’t end because we ran out of stone; we found something better, we replaced stone with iron but this transition took centuries. This time according to Dr Hirsh we have about a decade if we are lucky and a replacement for oil is yet to be identified.

Those disbelievers who feel the need to ridicule the peak oil story ought consider this. If by hallucination or some stretch of the imagination we turn out to be wrong then we merely look silly. However if the detractors are wrong, if the fountain of eternal energy, whatever that might be, is not found soon then the western civilisation we all know and love, contingently reliant upon oil to feed, clothe, house and medicate itself is about to end.

[1]. In 2004 the total world discovery of oil was 7Gb (a total of 3 months or so supply on the world market). 2Gb were in deep-water finds and the cost of exploration alone (not including development and production) exceeded the current net present value of the oil discovered. The world consumed 30Billion+ barrels of oil in 2004. Economies of scale are disappearing as the oil found is spread across greater numbers of increasingly smaller fields. Source – Association for the Study of Peak Oil and Natural Gas, Newsletter #50, February 2005.

2 comments:

The title of the blog sounds intriging (must find out how to actually spell that word)...and I got through the first couple paragraphs but since it is a long blog and it is almost 2:00 in the morning I will have to read it tomorrow and then I will post something about the actual blog...just thought I would do my part to help things look a little less forsaken around here :)

Ok, finally got around to reading the rest of it (have been very busy the last few days with school). I for one would, in many ways, welcome the regression of society a bit. Yes there would be things that would be unwelcome that would require adjustments - things we as a "coffee to go" society have come to know and love; but for the most part I think western society in general would improve if we went backwards in time a bit. And hey, if there are people out there who would die if our technology and luxuries were reduced and could not fathom the idea of a society without oil to power our lives here's an idea...when you have to go a few blocks to the store or to go to school - WALK!